Econintersect: Every day our editors collect the most interesting things they find from around the internet and present a summary "reading list" which will include very brief summaries (and sometimes longer ones) of why each item has gotten our attention. Suggestions from readers for "reading list" items are gratefully reviewed, although sometimes space limits the number included.
Asian shares soar to one-month high on earnings, Fed optimism (Hideyuki Sano, Reuters) many Far East markets are up between 1% and 2% Wednesday. MSCI's broadest index of Asia-Pacific shares outside Japan gained 1.1 percent, led by a 1.8 percent rise in South Korean shares. Japan's Nikkei share average also posted a sizable 1.5 percent increase. European markets followed Asia by opening higher this morning.
Money Markets Split With Economists on Fed Interest-Rate Outlook (Craig Torres and Catarina Saraiva, Bloomberg) While some (but not all) Fed officials are publicly opining that the Fed will start raising interest rates before the end of the second quarter next year, the futures market has been estimating late third or fourth quarter. See next article. The Fed meeting on Tuesday and Wednesday this week will be closely watched for indications of when rates will rise.
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China’s ‘new normal’ for consumption (Gabriel Wildau, Financial Times) Large retailers in China are reporting falling sales while China's National Bureau of Statistics is still showing 12% growth for retail sales first 9 months of 2014. The difference is attributed to reporting lag times and analysts feel that consumer sales have declined significantly so far in the second half of the year. The author points out that the consumer is supposed to take up the slack from declining investment in China's rebalancing. Wildau says that the rebalancing can still take place with declining growth of consumption provided investment growth is declining faster. These types of growth trajectories during rebalancing is how China can get to Michael Pettis' projected average 3% GDP growth for the rebalancing cycle.
How Sweden Joined Central Banking’s Hall of Shame (James Hertling and Jennifer Ryan, Bloomberg) Sweden joins the ECB (European Central Bank and the BoJ (Bank of Japan) as a central bank that was diligent in fighting non-existent inflation and then had to reverse those interest rate hikes quickly. Sweden has had to respond to ill-timed hikes to 2% in 2010 and 2011 by cutting rates, finally reaching zero as the phantom inflation turned into deflation.
India's GDP likely to grow by 5.6% in FY15: World Bank (Press Trust of India, Business Standard) Increased industrial production is expected to lead growth for India. The World Bank projects that from the 2012-2013 base of 4.5% to 4.8%, growth will improve to 5.6% this year (FY 2015), to 6.4% in 2016 and 7% in 2017.
The "Real" Goods on the Today's Durable Goods Data (Doug Short, Advisor Perspectives dshort.com) Inflation adjusted and normalized per capita, durable goods expenditures show a pattern corresponding to a severe depression. An especially useful portion of the durable goods data is the series excluding military and transportation durable goods spending. With the current value at 65% of the peak value at the beginning of 2000, we have what appears to be an extremely depressed economic function. There is a question that should be asked here and that is how much of this durable goods spending decline is due to a depressed economy and how much is due to increased efficiency (productivity) of durable goods? Doug does not address this directly. But he does point out that the decline in durable goods expenditures correlates with a decline in median household incomes. This implies that at least part of the depression could be related to decreased demand.
But part may also be from increased efficiency per dollar of durable good. Examples: Cars can be and are being driven many more miles than in the 1990s, the average car is lighter, uses smaller (cheaper) tires and and gets many more miles per set of tires than previously, computers, cell phones and other electronic goods are doing much more and costing much less than 15 years ago, etc. Part of the decline shown in the data is certainly due to depressed demand (correlates with lower incomes) but part is almost certainly due to efficiency/productivity gains as well. Sorting out these factors would enhance the usefulness of durable goods data.
Health insurer earnings: 7 takeaways (Allison Bell, LifeHealthPro) The generalizations for earnings and reports from companies participating in PPACA (Patient Protection and Affordable Care Act). Specifically mentioned are three companies: Aetna, Centene and Marsh & McLennan.
1. Profits and revenues are up double digits (>10%) and by huge amounts (as much as 50% or more) for some smaller carriers.
2. Conference call information indicates uncertainty about PPACA public exchanges. Companies have not published specific data about their experiences.
3. Big brokers (Marsh & McLennan cited) seem comfortable with performance of the private exchange structure but are not revealing revenue or profit specifically from them. They hope private exchanges "will have margins roughly in line with the company's current health brokerage business margins".
4. Claims experience with public exchange enrollees is varied.
5. There is variability in expectations for claims risk predictability in the exchange programs.
6. Some mid-size groups (51-300) will see big premium increases in 2015.
7. Insurers are putting more emphasis on growing exchange-based enrollments than on hanging on to the traditional off-exchange model.
How Wall Street Is Killing Big Oil (Deepak Gopinath, Outlook India) The major international oil companies (IOCs) of the West are edging toward liquidation, according to this article. See also next article. The control of oil markets has shifted to the NOCs (state-owned national oil companies) who now control approximately 90% of the world's known petroleum reserves. As a result the IOCs are spending more and more money to produce less and less oil. The author has an explanation: The IOCs have chosen short term gain, high dividends, maintaining large market capitalizations, high spare prices and profits over long-term strategies to maintain or increase future production. As a result:
Oil production by the majors has been falling steadily despite a sharp rise in spending. Output peaked at 16.1million barrels per day, mbpd, in 2006 before declining to 14 mbpd in 2012, while capital expenditure increased from US$109 billion to US$262 billion over the same period. Overall, the productivity of capital expenditure by the majors has fallen by a factor of five since 2000 and is declining at 5 percent annually. At the same time costs outpace revenues by 2 to 3 percent per year, while profitability is down 10 to 20 percent.
Facebook paying the price for its mobile success (Cadie Thompson, CNBC) Hat tip to Marvin Clark. Facebook beat estimates and sold off 10%. Why? Thompson says it is because the recent grwoth wave in mobile is nearing market saturation and investors are expressing the expectation that earnings growth will be slowing significantly. So, until Facebook shows a new growth strategy it will be under pressure.
Brown Plans Senate Hearing on ‘Disturbing’ New York Fed Tapes (Jeff Kearns and Mark Niquette, Bloomberg) The Carmen Segarra tapes concerning the New York Fed suppression of her report on the lack of conflict of interest policies and oversight at Goldman Sachs have caught the attention of Sen. Sherrod Brown (D, OH). He is planning to hold a hearing on the Federal Reserve Bank of New York oversight procedures. Perhaps he should call Timothy Geithner to testify and answer the question why he testified at his Treasury Secretary confirmation hearings in early 2009 about his term as New York Fed President that he had "never been a regulator".
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